HL Deb 19 February 1979 vol 398 cc1682-3WA
Lord HARMAR-NICHOLLS

asked Her Majesty's Government:

What would be the cost of replacing the current age tax allowances for pensioners aged 65 and over by the equivalent tax credits and whether they will estimate how many fewer pensioners would consequently be dependent on supplementary benefit, assuming that full advantage was taken of the rent and rate rebates and allowances administered by local authorities.

Lord WELLS-PESTELL

It would not be possible simply to replace the income tax age allowance by an equivalent tax credit. For example, under a pensioner tax credit scheme it would hardly be practicable to retain anything corresponding to the present income limit for age allowance, or the present lower rate band, and to abolish the latter would of course have implications for taxpayers generally. Estimates of cost in this area are very sensitive to the assumptions made on these points, and also on such matters as the levels of tax allowances, tax rates, pensions, and housing benefits.

On the assumption however that:

  1. (a) the income limit for age allowance was abolished;
  2. (b) the lower rate band was abolished and allowances for the under 65s were increased so as to leave no taxpayer worse off;
  3. (c) the credits were set at a level which would compensate for the abolition of both the existing age allowance and the lower rate band;
  4. (d) retirement pensions were at a level broadly equivalent to the standard rate currently in force; and
  5. (e) housing benefits were also at levels broadly equivalent to those currently in force;
it is estimated that the present cost of introducing a tax credit scheme for retirement pensioners aged 65 and over would be of the order of £600 million.

In theory, such a scheme could have reduced the numbers of pensioners dependent on supplementary benefit by something over a million.

These broad estimates make the assumption that every pensioner who might receive a net gain, however trivial, by changing from supplementary benefit to rent rebate or allowance and/or rate rebate, would do so. It is very doubtful whether this would happen in practice, for example because of the value of the supplementary pension as a passport to other means-tested benefits. To the extent that pensioners receiving supplementary benefit did not consider it worthwhile to make the change, the cost and the numbers taken off supplementary benefit would be reduced.